When they came during the Cultural Revolution to take away Yang Xianyi, China's distinguished translator who has died aged 94, he had one regret – that he was hauled off to prison, accused of being a British spy, in his old slippers. "My only thought at that time," he would recall, "was 'why didn't I change into proper shoes?'" Slippers were not the best footwear for four years (1968-72) in jail. It was typical of Yang not to make too much of his ordeal. He belonged to a generation of Chinese intellectuals who had chosen to support Mao Zedong's New China only to suffer for it in the extremism of the chairman's last years. Rather than rage against fate, those who survived would take refuge in humour and self-deprecation. Yang did so with a characteristic charm that concealed personal tragedy: his son became mentally disturbed after being sent to a factory during the Cultural Revolution and later committed suicide.

Yang came from a typical scholar-gentry family of the late Manchu dynasty: his father was head of the Bank of China in the city of Tianjin, 80 miles south-east of Beijing, where he was born. He was educated at home by a tutor in the Chinese classics before attending a missionary school in one of Tianjin's foreign concessions. Yang devoured English literature from Joseph Addison to Oscar Wilde: while still at school he turned John Milton into classical Chinese verse. Also enjoying Athenian drama in translation, Yang resolved to go abroad to study ancient Greek and was taken to London by an English teacher at his school.

Admitted to Merton College, Oxford, he studied classics for two years and then shifted to English literature with the poet Edmund Blunden, whose tutorials with him usually finished in the pub. More significantly, he met Gladys Tayler, the daughter of missionaries in China, at the Oxford China Society.

With Gladys's help, he translated the lyrical poem Li Sao by Qu Yuan (4th century BC) into English heroic couplets in the style of John Dryden. The couple returned to China in 1940 and married in the wartime capital of Chongqing, working as teachers and translators in the Chinese Nationalist area. After the defeat of Japan they moved to Nanjing.

Horrified by the violence of the Chiang Kai-shek regime, Yang joined the underground, passing on information gleaned from foreign diplomats. Ironically it was because of this pro-communist activity that, 20 years later in the Cultural Revolution, he would be labelled an anti-communist "foreign spy" . Though Yang and Gladys were offered seats on a plane to Taiwan when Chiang's government fled in 1949, it never occurred to them to leave. By 1952 they had joined the Foreign Languages Press in Beijing, in charge of an ambitious project to translate all the most important works of Chinese literature into English. The Yangs' approach was faithful to the originals but always expressed in readable language. Their output over the years amounted to more than 60 titles: tens of thousands of foreign students of Chinese, from then till today, have relied on their work.

The best-known titles include The Courtesan's Jewel Box (vernacular tales from the 10th to 17th centuries), the Qing dynasty novel The Scholars, and Selected Stories by the modern writer Lu Xun. Yang also translated many foreign classics into Chinese – including Homer's Odyssey and Bernard Shaw's Pygmalion – but the Chinese authorities regarded this dismissively as his "private enterprise".

After being released from detention, in 1972 the Yangs were allowed to complete their translation of the most famous novel of all, the 18th-century Dream of the Red Chamber, but still lived under a political cloud.

I first met Gladys and Yang in April 1976, during the last turbulent months of Mao's life, in their dark apartment which could be reached only by clambering around piles of coal and cabbages. Loudly, Yang denounced "that woman" — Madam Mao, who was then staging a final bid for power. Gladys gestured towards the probably bugged telephone, crying out: "Do shut up, old man, or we'll go back to jail!"

But after Mao's death it was his wife and her associates in the Gang of Four who were jailed, while the authorities apologised to the Yangs for their "unwarranted arrest" 10 years earlier. Yang now became chief editor of the monthly Chinese Literature magazine and launched a new series of translations under the Panda imprint – modelled on Penguin paperbacks.

During the 1980s, their apartment became an informal salon where a new generation of Chinese writers and western journalists could meet, usually over a bottle of scotch. Encouraged by the new mood of political reform, Yang even joined the Communist party. In 1987 the party old guard hit back, sacking the reform-minded leader Hu Yaobang, and paving the way for the bloody events around Tiananmen Square two years later. When the crisis came, Yang decided he could no longer shrug politics aside. "I could at least speak through the foreign TV and newspaper correspondents to the people outside China and tell them the true situation," he recalled in his autobiography White Tiger (2000).

His message was that what had happened was "a fascist coup engineered by a few diehards against political reform". In a BBC interview after the massacre during the night of 3-4 June, Yang declared that the party leaders were even worse than past Chinese warlords or Japanese invaders. The authorities, probably deterred by Yang's age and reputation abroad, left him at liberty, and after a vain attempt to persuade him to recant they merely expelled him from the party.

In 1994, Yang and Gladys moved into the Beijing Friendship hotel, where they remained in quiet retirement till Gladys's death in 1999: Yang then lived peacefully with his daughter Yang Zhi and her husband David, in their courtyard house north of the Forbidden City.

In 1993 Yang had been awarded an honorary doctorate by the University of Hong Kong, where he was praised as a "master translator". His worldwide reputation was never quite matched at home, but in September this year he received a lifetime award from the Translators' Association of China. When he retired, Yang penned a short punning couplet to sum up his life: "The bright youngster may not become a genius: muddle-headed in middle age, he is shameless – or toothless – when old" (the two adjectives in Chinese have the same sound). "Chinese intellectuals over the past century," Yang added in a wry footnote, "have been mostly like this ... it is just the way things are".

Though there was historical truth in Yang's judgment, it was too hard on him personally. Committed to revolutionary China for all its faults, he and Gladys made a huge intellectual contribution and, when it really counted, he did speak out. He is survived by two daughters and four grandchildren.